IT’S A PARALLEL MARKET TING, BABY!
Nigerians are not their own problem, it's just a parallel market ting.
You see, the field of economics is heavily developed, and there is almost nothing that is happening now that cannot be explained by what has happened before.
Parallel markets are not a new thing. When you need to get something under extraordinary conditions, chances are that you would pay a premium for it. Well, that is the parallel market.
If you want to read a whole lot more technical essay on parallel markets, you should check out Parallel, fragmented, or black? Defining market structure in developing economies by David L. Lindauer. I have gone through the task of reading it, of course, so I would draw from it as we look at the parallel markets in Nigeria today.
Parallel markets spring up, almost on cue, when:
There is government intervention which could come in four main forms (taxes, regulations, prohibitions, corruption);
The intervention creates excess demand or supply for a commodity.
That is pretty much all it takes to create a parallel market. I use the word “create” because parallel markets pretty much only occur after government policies mess up demand and supply. Government intervention creates a parallel market.
We are going to quickly look at some Nigerian government interventions, and the parallel market(s) they created. And boy does the Nigerian government love to create parallel markets!
Take a look at the market for dollars, for instance. The Nigerian government intervenes by regulating foreign exchange markets and fixing a price that suggests that the naira is more valuable than it actually is. The government says 450 nairas can get one dollar. Citizens want to exchange a dollar for 450 naira but that is not the amount of naira that can get a dollar.
Since the Nigerian government itself cannot supply enough dollars at the 450 naira price point, there is an excess demand for dollars. Predictably, a parallel market emerges, or two parallel markets actually. One parallel market for getting dollars as cash, and one parallel market for getting dollars for card payments.
By the way, this is one reason I am doubtful about the long-term survival of non-bank virtual card services as full-blown businesses. The day the government changes and does not intervene by fixing the price of the naira, which means banks can sell dollars at a price that works for them, then the demand for non-bank virtual card services would fall closer to zero. But I guess as long as the government fixes prices, the market continues.
Another easy example to reach out to is the petroleum market, and particularly, petrol. The Nigerian government has fixed the price for petrol at a point where it is not profitable for the importers to sell at. As a result, the sellers are not selling their stock which means there is not enough supply of petrol which means there is excess demand. You know the drill at this point, yes, a parallel market emerges where you pay more to buy petrol.
I have established how parallel markets work because recently I have seen comments about the unavailability of the newly launched naira notes. These comments tend to suggest that the reason why the fees for getting the new naira are high is that “Nigerians are their own worst enemies taking advantage of a situation to profit”. Unfortunately, this is not true. It is not about morality. The explanation lies in economics.
It’s a parallel market ting, baby!
Post-credits: Today’s episode was edited by my friend, Moriam. Thank you, darling!
Awesome breakdown 💯💯 now at what point does this parallel becomes unparallel 💀